Unit 05 - Practice Exam 4 <Customer Accounts>

When a customer wants to open a guardian account, which of the following is needed? A) Copy of the court-ordered guardianship papers. B) Limited power of attorney. C) Signed customer account card, credit agreement, and loan consent. D) Full power of attorney.

Your answer, Copy of the court-ordered guardianship papers., was correct!. The courts appoint a guardian to act on behalf of another individual who is unable to act for himself. Full and limited powers of attorney relate to accounts over which the beneficial owners have granted some form of control to other persons. Reference: 5.2.1.4.1 in the License Exam Manual.

*A broker/dealer has put customer's securities in its own proprietary accounts. This is a violation of industry rules known as:* A) commingling. B) withholding. C) refunding. D) freeriding.

Your answer, commingling., was correct!. Mixing a customer's securities in with the accounts of the broker/dealer is commingling and is prohibited by securities industry regulations.

If a registered representative receives a call from a custodian wishing to buy shares of a new issue security, the registered representative should: A) talk the investor into buying another stock. B) refuse to accept an order. C) discuss and review suitability. D) accept the order only if it is placed in a margin account.

Your answer, discuss and review suitability., was correct!. There are no restrictions that specifically apply to the purchase of new issues in a custodial account, provided the registered representative has discussed and reviewed the suitability of the investment. Reference: 5.3.1.5 in the License Exam Manual.

If a new joint tenants with rights of survivorship account is opened, all of the following statements are true EXCEPT: A) orders may be given by either party. B) checks may be drawn in the name of either party. C) in the event of death, the decedent's interest in the account goes to the other party. D) mail may be sent to either party (with the permission of each party).

Your answer, mail may be sent to either party (with the permission of each party)., was incorrect. The correct answer was: checks may be drawn in the name of either party. While either party may enter an order, any money or securities delivered out of the account must be in the names of both owners.

An individual has given full power of attorney (POA) to a third party. This means that the designee is permitted to: A) close the account and reopen it in the designee's name. B) remove funds or securities from the account, but not originate trades. C) originate trades in the account and remove funds or securities. D) originate trades in the account, but not remove funds or securities.

Your answer, originate trades in the account and remove funds or securities., was correct!. Full power of attorney gives the named third party, the designee, all of the power of the owner except the right to change the name on the account. Reference: 5.2.1.5.1 in the License Exam Manual.

*Each of the following must be verified or determined about a new customer EXCEPT:* A) whether he is employed by another broker/dealer. B) citizenship. C) whether he appears on a list of known or suspected terrorists. D) whether he has a brokerage account at another broker/dealer.

Your answer, whether he has a brokerage account at another broker/dealer., was correct!. Though individual firms may require it, there is no industry requirement to verify or determine that a customer has an account at another broker/dealer.

If one of your clients dies, on notification of death you should immediately: mark the account "deceased" until proper documents are received. cancel all GTC orders for the account. obtain a letter from the attorney representing the estate with instructions for transfer. obtain the names and addresses of the beneficiaries of the estate. A) I and III. B) I and II. C) III and IV. D) II and III.

Your answer, I and II., was correct!. The account's registered representative must cancel all open orders and mark the account "deceased." The firm must not permit any trades until proper documents are received from the estate representative. It is not the responsibility of the firm to contact the decedent's attorney or the beneficiaries. Reference: 5.2.3 in the License Exam Manual.

Which of the following statements regarding joint accounts/tenants in common are TRUE? Each party specifies a percentage of interest in the account. Each party has an equal interest in the account. The interest of a deceased tenant passes to the estate of the decedent. The interest of a deceased tenant passes to the co-tenant. A) II and IV. B) I and III. C) I and IV. D) II and III.

Your answer, I and III., was correct!. In a TIC account, each party must specify a percentage of interest in the account. If one party dies, his percentage of ownership passes to his estate, not to any other party to the account. Reference: 5.2.1.2.1 in the License Exam Manual.

Which of the following can be a custodian under UGMA? Any legally competent adult. An investment advisory firm. A broker/dealer in street name. The beneficial owner. A) I only. B) I, II, III and IV. C) I, II and IV. D) I and II.

Your answer, I only., was correct!. Only an individual adult can be the custodian in a minor's account. Neither a broker/dealer nor an investment advisory firm can be the custodian for an account under UGMA. The beneficial owner is the minor and cannot be the custodian. Reference: 5.3.1.2 in the License Exam Manual.

Your broker/dealer acts as a prime broker for ABC fund. In this arrangement, your broker/dealer is likely to be providing which of the following services? Execution of all transactions for the fund portfolio Clearing services Lending for trades done on margin Ensuring that all exchange-trading rules are complied by A) II and III B) II and IV C) I and III D) I and IV

Your answer, II and III, was correct!. The prime broker would supply clearing services, lending services for marginable transaction, as well as back office support including cash management, account statements, and transaction processing. Actual executions and abiding by all exchange rules when transactions occur is the responsibility of the executing broker/dealers. Reference: 5.1.3.5 in the License Exam Manual.

Which of the following circumstances must be met for a fiduciary to trade options in a trust account? Special circumstances determined by the broker/dealer. The trust agreement states the trustee has the power to trade options. The trust's investment objectives are determined to be compatible with options trading. Only covered options may be traded by a fiduciary. A) I and IV. B) I and III. C) II and IV. D) II and III.

Your answer, II and III., was correct!. A fiduciary account may only trade options if expressly authorized to do so and if suitable for the beneficial owner of the account. Reference: 5.2.1.4.1 in the License Exam Manual.

Which of the following are discretionary orders? A customer sends a check for $25,000 to an agent and instructs the agent to purchase bank and insurance company stocks when the price appears favorable. A customer instructs an agent to buy 1,000 shares of ABC Corporation at a time and price determined by the agent. A customer instructs an agent to purchase as many shares of XYZ as the agent considers appropriate. A customer instructs an agent to sell 300 shares of LMN, Inc., when the agent deems the time and price appropriate. A) II and IV. B) I and IV. C) I and III. D) II and III.

Your answer, II and III., was incorrect. The correct answer was: I and III. Discretion authorizes a representative to choose the security, the amount of shares, or whether to buy or sell. Time and/or price alone are not discretionary decisions. Reference: 5.2.2 in the License Exam Manual.

A customer, without giving written authorization, may permit a registered representative to exercise his judgment as to: the security. the price at which to enter the order. the amount of shares. when to enter the order. A) III and IV. B) I and III. C) II and IV. D) I and II.

Your answer, II and IV., was correct!. Registered representatives may choose the price or timing of an order without having discretionary authority. Reference: 5.2.2 in the License Exam Manual.

Which of the following individuals may NOT open a joint account? A) Two spouses. B) Parent and a minor. C) Two business partners. D) Three sisters.

Your answer, Parent and a minor., was correct!. A minor may not be a party in a joint account because a minor cannot legally exercise control over the account. A custodial account may be set up for the minor. Reference: 5.2.1.2 in the License Exam Manual.

Under the Uniform Transfer to Minors Act, there may be: A) 1 custodian and 2 beneficial owners. B) 1 custodian and 1 beneficial owner. C) There is no restriction on the number of tenants in an UTMA account. D) 2 custodians and 1 beneficial owner.

Your answer, 1 custodian and 1 beneficial owner., was correct!. There may be only one custodian and one minor per UGMA/UTMA account. Reference: 5.3.1.2 in the License Exam Manual.

John is the custodian of his niece's UGMA account. John places an order for 100 shares of a very speculative stock for the account. What should the representative do? A) Refuse to enter the order, because it is unsuitable for a UGMA account. B) Advise the custodian as to the suitability of the stock. C) Consult with his principal before entering the order. D) Enter the order as requested, without comment.

Your answer, Advise the custodian as to the suitability of the stock., was correct!. The custodian should not place unsuitable orders in a UGMA account. The representative should inform the custodian of this. Reference: 5.3.1.5 in the License Exam Manual.

Two siblings have an account with your broker/dealer registered as joint tenants with rights of survivorship. Both live in a state that recognizes community property as an ownership designation. If one of the siblings dies, which of the following will occur? A) The deceased sibling's interest in the account will pass to the surviving sibling in accordance with the joint tenants with rights of survivorship account registration. B) The deceased sibling's interest in the account will become the property of her estate. C) The deceased sibling's interest in the account will be divided in accordance with the community property laws of that state. D) The entire account will be liquidated and divided in accordance with the community property laws of that state.

Your answer, The deceased sibling's interest in the account will pass to the surviving sibling in accordance with the joint tenants with rights of survivorship account registration., was correct!. This account, registered as joint tenants with rights of survivorship, will be handled in accordance with that account registration at the time of the death of either sibling. The deceased sibling's interest in the account will pass to the surviving sibling. Community property laws in jurisdictions that presume that type of ownership designation only applies to marital property (property acquired by the two individuals while married). Therefore, community property laws would not be applicable to siblings. Reference: 5.2.1.2.3 in the License Exam Manual.

Securities in an UGMA account are sold at a profit. Who is liable for the current year taxes on the sale? A) The minor. B) No one; they are deferred to the age of majority. C) The donor. D) The guardian.

Your answer, The minor., was correct!. The UGMA account is for the benefit of the minor, which is registered with the minor's Social Security number. All taxes on the account are the responsibility of the minor. Reference: 5.3.1.6 in the License Exam Manual.

Which of the statements regarding a member firm's handling of a discretionary account is TRUE? A) A principal must approve each discretionary order prior to execution. B) The registered representative may not effect transactions excessive in size or frequency in view of the customer's resources. C) The registered representative must obtain written authorization from the customer before placing each order. . D) Margin may not be used in a discretionary account.

Your answer, The registered representative may not effect transactions excessive in size or frequency in view of the customer's resources., was correct!. A discretionary account allows the registered representative to place orders without consulting the customer. It does not relieve him of the obligation to execute only suitable orders. Reference: 5.2.2.2 in the License Exam Manual.

If three individuals have a tenants in common account with your firm, and one individual dies, which of the following statements is TRUE? A) The account is converted to joint tenants with rights of survivorship (JTWROS). B) The account must be liquidated and the proceeds split evenly among the two survivors and the decedent's estate. C) Trading is discontinued until the executor names a replacement for the deceased. D) Two survivors continue as co-tenants with the decedent's estate.

Your answer, Trading is discontinued until the executor names a replacement for the deceased., was incorrect. The correct answer was: Two survivors continue as co-tenants with the decedent's estate. The decedent's estate becomes a tenant in common with the survivors. Reference: 5.2.1.2.1 in the License Exam Manual.

If three individuals open up a joint account with your firm, and one of the parties to the account possesses written authorization from the other parties granting him authority to make all trading decisions, the new account form must contain information on: A) the individual with the highest net worth. B) any two of the three individuals. C) the individual granted trading authority. D) all three individuals.

Your answer, all three individuals., was correct!. Information is required for all three individuals because they all have ownership in the account. Reference: 5.2.1.2 in the License Exam Manual.

Under the rules governing the activities of broker/dealer firms, prior notification to the employing firm would be required in order to open a cash account for all of the following EXCEPT: A) an exchange employee. B) a registered representative of another member. C) an employee of another member. D) a bank officer.

Your answer, an exchange employee., was incorrect. The correct answer was: a bank officer. SROs in the securities industry require prior notification for opening accounts of persons employed in the industry and margin accounts for employees of financial institutions. Reference: 5.1.5 in the License Exam Manual.

If a customer wishes to open a custodial UGMA or UTMA account for his nephew (a minor), the uncle: A) can open the account provided the proper trust arrangements are filed first. B) needs a legal document evidencing the nephew's parents' approval of the account. C) can open the account and name himself custodian. D) can be custodian for the account only if he is also the minor's legal guardian.

Your answer, can open the account and name himself custodian., was correct!. The donor may name himself the custodian of an UGMA or UTMA account. No documentation of custodial status is required to open an UGMA or UTMA account. The custodian is not required to be the minor's legal guardian.

If a customer wishes to open a cash account in her name only and allow her husband to make purchases and receive checks in his name only, she must instruct her broker/dealer to open a: A) cash account with full power of attorney. B) cash account with limited power of attorney. C) margin account. D) cash account.

Your answer, cash account with full power of attorney., was correct!. For anyone other than the account owner, entering trades and withdrawing assets requires a full power of attorney. A limited power of attorney enables a nonaccount owner to enter trades but not to withdraw assets. Reference: 5.2.1.5.1 in the License Exam Manual.